Frequently Asked Questions and Concering Building Your Custom Home:

1. Where do we begin?
2. How do I select a builder?
3. How do I compare builder pricing?
4. How can I be assured the value of the project will equal or exceed the cost?
5. When should I impose my personal tastes and desires?
6. How can I find a lot that is suitable for my plan?
7. How do I ensure I can build my house within my budget?
8. How much time should I plan for the design and build process?
9. Do I need an architect to develop my plan?
10. Do I need a realtor to represent me?
11. What is a fixed price contract and what are its advantages and disadvantages?
12. What is a cost plus contract and what are its advantages and disadvantages?
13. How are construction funds provided and managed?
14. How do down payments work?
15. How can I ensure the responsiveness of the builder once the project begins?
16. How do I know if my home will be highly energy efficient?
17. What selections should I expect to make?
18. What should I know about warranties?

Question 1: Where do we begin? <top>

Here are a few Starting Places:

• Find a builder who builds the style of home that appeals to you and is within your price range and has a reputation for reliability and credibility.
• Acquire a piece of land that you love.
• Look for a house plan already built, in a book, as a model or in a parade of homes that fits your needs or incorporates ideas that appeal to you.
• Find a builder that has a lot or a house plan that fits your needs, or both.
• Hire an architect or plan designer you trust. Have a desired or needed geographic location. Go there and start looking.
• Talk to a trusted realtor or builder who will help you sort through the options.
• Ask friends, business associates or homeowners, in the area where you are going to build, for a referral to a good builder.

As always, budget will determine the type of land and home you can acquire. To a great extent it will also determine your location. Talking to experienced builders in the area you want to build, will help you sort out pretty quickly whether you can make things work. Realistic expectations are a must at this point. Priorities and options will have a way of surfacing once you commit to the process.

Selecting a builder is probably the most important of all decisions. In addition to experience, skill, dedication, and honesty, he needs to relate to you and your family. You can determine his qualifications for your project by doing any or all of the following:

• Check references by talking to homeowners and business associates.
• Inspect in process and completed projects.
• Meet with him and his staff.
• Review his contract, specifications and related job organizational materials.
• Call his key subcontractors and suppliers to determine the quality of his working relationships
  

For more ideas and information visit our Choosing A Builder Page.

This is probably the most difficult aspect of builder selection. Obviously, you want to get good value for your investment. Everybody asks "what is your cost per square foot?" This is a virtually meaningless question because there are so many variables which can distort the comparison. The costs can vary significantly based on the style of plan, level of finishes, location and infrastructure required by the lot or community.

Here are a few sugestions for the most accurate way to compare pricing is to ask for the following:

• Cost per square foot for main level square footage: If you build a home that is one level with an unfinished basement, all the costs associated with the site, garage, unfinished basement and deck or patio need to be reflected in the cost of the main level.
• Cost per square foot for basement finish: This will be significantly less than the cost of the main level finish because the walls, windows, insulation, base plumbing etc. are already existing and you have no cost for infrastructure, kitchen or deck.
• Cost per square foot for second story finish: This should be less than the main level but more than the basement due to the need for exterior walls, windows and stairs but no costs associated with the main level.

Project value results from incorporating the most broadly desirable components and finishes, including land. If you obtain these desirable components and finishes at a fair price then you can assume the value equals the cost.

If a financial institution is providing the construction funds they will require an appraisal of the project. The appraisal will provide a fair valuation of the project based on available comparables.

Another factor relates to appropriateness of the item for the project and how it compliments other components. Spending $4,000 for a pedestal lavatory in the powder room of a $250,000 production house probably will not increase the value accordingly. However, installing it in a $1,000,000 home that has upgraded fixtures throughout may be required. How do you know what to select? An experienced builder, architect, realtor or interior designer can lead you in the right direction. Whoever you establish your relationship with and trust should be your adviser

We suggest to clients that if they are going to be in a house for 5-years or less stay away from really unique features that don't have broad appeal and accordingly a purchaser won't likely pay to own. This could include interior finishes or spaces that aren't customary. If you are going to live there 10-years or more, invest the money where it appeals to you and maximizes your lifestyle and comfort. Don't worry about the future buyer. If you want to turn your basement into a garage to store your antique car collection, do so even though you may not be able to recover your investment if you sold it today. This is an extreme example, however it establishes a point that value and usefulness to you may not be valuable and useful to someone else.

When purchasing a lot you will most likely be dealing with real estate professionals. If either the listing or selling agent has land experience he can make this evaluation. However, it is best to also request a trusted, experienced builder to assist. The more difficult the project the more professionals you might need to involve. If soils are questionable you might need to have a soils engineer do a soil examination. If topography is not easily discernable or there are significant grades you should have a surveyor prepare a topographic map and so on. If a licensed architect is preparing the plan, he should be involved. Usually site features are not that ambiguous and the builder/ realtor evaluation is adequate. Whoever is helping you needs to recognize whether paying additional professionals will be a good investment. We suggest that any land contract should be contingent on resolving any questionable conditions.

Recognize that given enough money you can make just about anything work. This then gets back to value vs. cost and what are the options.

Develop realistic expectations by researching new homes and inquiring about the elements that interest you. You need to get comfortable that your budget will allow you to include the features you require. You then find a qualified, responsible builder who is willing to work with you and pursue your goal. We always provide preliminary budgets that identify a range of costs to help you start and stay within the comfort level of your budget. As plans progress, so do the cost estimates. At any point, you will be deciding whether the cost of a feature or size of an area is worth the additional cost. Keep in mind that from the start of the process it will likely be six months or more to complete the planning phase and another six months or more to build so inflation will be a factor. Try to leave some room in your budget for this, as well as other items the builder probably does not include such as landscaping, window coverings and anything you will need within 6-months of occupancy.

The minimum time you should expect for design and build for your custom home is five months to design and five months to build. These numbers represent the most optimistic in both categories and would occur only if you found a house plan that required few if any modifications and was modest in size. Obviously the larger, more detailed and complicated the project the greater the time. An average for our projects now is approximately seven months for each phase. A lot of what happens depends on how much personal time you can commit and how rapidly you can make decisions. The schedule availability of the other parties involved is also critical. Be realistic. Once you have decided on a floor plan, completed all the revisions and worked your way through all the details and finishes, the builder must then obtain the necessary permits and approvals. This includes architectural control committees for the community, building permits, utility permits and whatever else your area requires. This can be relatively quick or very time consuming.

The complexity of the project should be the determining factor as to whether you need an architect or plan designer. Many times a builder will have a plan that meets 90% of your needs. In that case, the builder will usually have his agents modify the plan to meet your needs. The agent could be an architect or a plan designer. Starting with an existing plan also allows the builder to provide a more accurate estimate of the pricing. The builder can often provide preliminary sketches of the home you are trying to create from existing plans he has or ideas you supply.

On more complicated, and unique projects the architect is much more critical to the process and may be the first professional engaged. In this case, the costs are much less controllable due to the difference in objectives. Architects are generally best suited to solve unique or difficult aesthetic, structural and site integration issues, which are not necessarily cost sensitive. An architect provides broader training and qualifications and accordingly you need to expect higher fees. You need to provide very specific instructions to whomever you are working with as to your primary objectives and goals.

Realtors can be of significant benefit to buyers moving into a new community. In addition to locating builders and real estate, they have intimate knowledge of value, schools, growth patterns and other important community features. They can be very well worth the fees paid. Many builders have realtors represent them who provide valuable services to both parties.

For residents who are relocating within a community and already know the quality areas and builders, realtor services may not be as beneficial, other than providing a comfort level and negotiating service.

The realtor may also provide a very valuable service in finding acceptable lots and locations for your project. The land market changes rapidly and access to the MLS may be critical. However, using a realtor for your lot purchase does not require using a realtor for the build contract. It is strictly your choice and you need to feel comfortable with what you do. After all, buying a home is the most expensive purchase you will ever make. You will also probably be doing it several times during your life. It can be very expensive if you make a wrong choice.

A fixed price contract is one where the price for the project is set at the contract signing and is based on the items described and represented in the plans and specifications. The price can be changed throughout the construction process by written change orders or allowance reconciliation's.

The advantage of this form of contract is that generally all risk of cost increases, damage or loss is absorbed by the builder. The disadvantage is that the builder may increase his fee to carry this risk.

Many builders are reluctant to use fixed cost contracts as they require much more precision and up front effort on plans, selections, specifications and bidding to ensure an accurate budget. If accurate fully detailed plans and specifications are available, a high percentage of our clients select the fixed price option.

Question 12: What is a cost plus contract and what are its advantages and disadvantages? <top>

cost plus contract is one where the builder charges a markup on the costs incurred in the execution of the contract. Project costs may include the cost of site supervision, insurance, and setup. On a cost plus 15% contract, for example, the client would be charged $1.15 for every dollar the builder spends.

The advantage of this contract is that the client will have knowledge of all expenses incurred and benefit from any savings. The disadvantages are that if costs increase due to plan errors or omissions, inflation or inaccurate estimates the client pays the extra. There also is less incentive for the builder to control costs.

In any cost plus contract it is important to determine who is responsible for costs due to site damage, vandalism, errors in execution etc. It is also important to understand what items are included as "costs" such as, supervision, insurance, realtor commissions, etc. on which markup will be charged.

A variation of this is cost plus a fixed fee. In this scenario the builder establishes his fee based on the expected costs and fixes that amount. The fee does not vary unless significant modifications are made. This removes the incentive for the builder to let costs inflate and removes the builder penalty for generating savings.

Money is like any other commodity that is used in constructing your home. All use of money has a value and the cost needs to be calculated. Funds for construction generally come from three sources as follows:

• Your own funds
• Your own construction loan
• Builders construction loan

You may initially assume using your own funds costs nothing. However, you are losing the opportunity of earnings on the funds you are investing in the home. You may be saving money, depending on how you had your money invested, but there is still an associated cost. An additional cost saving resulting from using your own funds would be no loan origination fees or related costs. We would still, however, recommend that you obtain an appraisal on your project.

Acquiring your own construction loan, as opposed to having the builder do this, has the advantage of you knowing the exact cost of the loan and being able to deduct this cost on your taxes. To obtain your own construction loan you will usually need to own the lot. This has the added benefit that no transfer of deed and related cost needs to occur at the completion of the project. Before you can obtain a construction loan, you will, as always, need to qualify. The disadvantage of this type of loan is that you will probably have more out of pocket cost invested in the project and project delays result in additional interest.

The letter of intent is executed and secured with a money deposit. The deposit is provided to cover the estimated costs of getting the project ready to begin which includes soil exam, design, permits, etc. Upon completion of the plans, specs, selections and bidding, a contract will be prepared for signature. At any time during the process, if the circumstances change, either party may cancel the arrangement with a proportionate refund of the initial deposit. This protects both parties from significant damage. In our mind, it is much easier to void a letter of intent for $10,000 to $15,000 then to rescind a contract for $500,000 to $1,000,000.

Sometimes builders will require buyers to invest 5% to 15% as a downpayment with a builder without really knowing what the final package will cost or include. Conversely some builders may expend thousands of dollars on a client's project without any kind of signed commitment from the client. These arrangements have the potential to be unfair to both parties.

The main issue here is that you understand the implications and requirements of any agreement you sign, especially when you have expended funds.

The builder, as well as the client should be bound by a detailed, accurate contract, that includes time commitments which describe the obligations of both parties. This in itself does not insure builder responsiveness. However, with effective documents the need for responsiveness should be less of an issue. There will always be questions you will need to have answered. It is the builder's discipline and business practice that determines whether he returns your call in 2-hours or 2-days. This is one of the areas where it is important that you speak with former clients business associates etc. as to how he runs his business.

Unless you have your home rated by an independent professional rater you won't really know. Simply installing "energy efficient " products is risky unless you know how your home works as a system. Installing R-50 insulation in the ceiling is more energy efficient than R-38, but is it economical?

Sometimes energy products relate more to comfort and lifestyle than energy dollar savings. An example of this would radiant heat. Radiant heat is less costly to operate then forced air gas, however after considering the additional cost to install the system, it is not more economical given today's energy costs. Notwithstanding this, many homeowners want this system because of the comfort, lifestyle and quietness that it provides.

Theoretically, you have the right to make all the selections in your custom home. However, from a practical matter, you will probably be involved in the selection of only a few of the construction components and most of the finishes, which are loosely defined as "all the things you can see". You should choose a builder who incorporates as standard, most of the features and finishes you are looking for. By doing this, you will minimize the effort involved in selecting items which are outside the builder's envelope. Also, the builder won't always be saying " that will cost you extra". This can be uncomfortable for both parties as well as being inherently inaccurate in estimating the final cost.

A. Equipment and product warranties, received by the builder, are fully transferred to the client. The builder will not usually provide any extended warranty related to these items.

For items not covered by these warranties the National Association of Homebuilders has published a document titled "Residential Construction Performance Guidelines". This publication identifies "observable deficiencies", the related "performance guideline" and the "corrective measure". This publication attempts to reduce the subjective evaluation to an objective measurement. This is effective up to a point. There are always issues that arise which are not specifically covered, and like beauty, it is in the eye of the beholder. When a questionable item arises, an agreement between the client and builder will need to be reached as to whether a deficiency exists and if so, what is a reasonable resolution.

The inherent problem with homes is that they are handmade using thousands of individual parts installed under all sorts of conditions by varying levels of skilled craftsmen. There is no perfect component in a home. The question is, what level of perfection do you expect in the home you are having built? Before you commit to a builder, look at several examples of his existing product and determine if you will be satisfied with his level of finish work. It really gets down to your expectations. If your expectations exceed what is reasonable and customary then you need to be very explicit with your builder.